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Original Risk: A Society for Change Agents

Mariah Re catastrophe bond litigation dismissed


A New York Federal judge dismissed claims regarding the catastrophe bond Mariah Re Ltd. on Tuesday, according to court transcripts. The judge ruled that the terms governing the definition of and process for qualifying events of Mariah Re are unambiguous.

The litigation had been filed against the sponsor of the Mariah Re catastrophe bonds (Mariah Re Ltd. (Series 2010-1) and Mariah Re Ltd. (Series 2010-2)), American Family Mutual Insurance as well as risk modeller AIR Worldwide and Insurance Services Office, Inc. (ISO).

The claims revolved around how severe thunderstorm events qualified under the aggregate terms of the cat bond documentation. Two qualifying catastrophe events which had their classification changed from non-metro to metro events in an updated report, denoting whether they affected the most built-up parts of a city or not, caused the amount of losses that qualified to jump significantly taking the aggregate losses towards the exhaustion levels for the cat bond.

The liquidators claim, which appears likely to have been brought at the request of investors in the cat bond, questioned that non-metro to metro change (for the 2010-1 series of notes we believe), seemingly claiming it was not part of the calculation process they were aware of for the Mariah cat bonds.

As we explained previously, any questions about the changed estimates would likely be answered by the details in the transaction offering documentation. If the method and process for changing or upgrading a loss event to metro were properly documented, and the documented processes were followed, then it seemed unlikely that such a claim would succeed.

The Judge in charge of the hearing said that Mariah Re had gambled on the weather, lost and then tried to convert this to a game around the contract wording. The judge said the documentation was unambiguous and after investigation provide no basis for the relief sought by Mariah Re’s liquidator and the claim, which wanted to claw back the $100m of losses.

The judge agreed with AIR’s and ISO’s assessment that the documentation was accurate and the process followed and that Mariah Re had no claim to make which could result in a claw back of losses.

So it seems that the full payout will stand and the Mariah Re case, at least this chapter, can be put to bed. There is always a chance of an appeal, we’d imagine, but after this ruling sides with the defendants any future case may struggle to even be heard.

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